Royalty stacking

Royalty stacking refers to the accumulation of royalties owed by a single manufacturer to several patent holders whose patents cover the same product. The phenomenon is specific to standardised technologies, where thousands of standard essential patents belong to dozens of distinct holders.

The mechanism of royalty stacking

A smartphone implements telecommunications, connectivity, video and audio compression standards. Each of these standards is covered by patents declared essential. If each holder set its royalty without regard to those of the others, the sum of the royalties could exceed the value of the standardised technology, or even the price of the product. Royalty stacking describes that risk. It is invoked by implementers to justify moderating the rates demanded by patent holders.

Royalty stacking in the determination of the FRAND rate

The FRAND undertaking given to standard-setting organisations requires fair, reasonable and non-discriminatory terms. In determining a rate, courts take into account the aggregate burden that all essential patents would place on the product. The so-called top-down method starts from that aggregate burden and allocates it among holders in proportion to their share of the essential portfolio. The comparable licences method takes into account the rates actually charged on the market.

The patent holders' objections

Patent holders dispute the reality of the phenomenon. They argue that the royalties actually paid remain far below the theoretical amounts, that portfolio licences and cross-licensing agreements reduce the burden, and that moderating rates devalues research investment. The debate over royalty stacking is therefore as much a debate about economic evidence as a debate about law.

The firm acts in FRAND license et de standard essential patents, before the French courts and the Unified Patent Court. See our page FRAND lawyer and the intellectual property policy ofETSI.